This type of loan can be hard to find because single-purpose reverse mortgages are only offered by some state and local governments and select nonprofit organizations. Further, eligibility is often limited to homeowners who meet certain income limits. For example, say you’re a senior homeowner with limited retirement savings and you need help making your property tax payments. If your local government offers single-purpose reverse mortgages, you could apply and request to use the funds strictly for your property taxes. If approved, you would receive the loan proceeds and would only be able to use them to pay for your property taxes—no other expenses.
How Single-Purpose Reverse Mortgages Work
If you want to get a single-purpose reverse mortgage, find out if they’re available from a government entity or nonprofit organization near you. To qualify, you’ll need to:
Be at least age 62Own a homeIdentify a qualifying expenseMeet the lender’s eligibility requirements (which can vary)
A single-purpose reverse mortgage often is the least expensive type of reverse mortgage because it only accesses a small amount of your equity—the amount necessary to cover a single type of expense. For example, if you owe $3,500 in annual property taxes, that amount could be made available to you each year through a single-purpose reverse mortgage. In contrast, a Home Equity Conversion Mortgage (HECM) bases your available loan amount largely on your home’s appraised value and your age. Similarly to other types of reverse mortgages, you won’t have to make regular repayments on a single-purpose reverse mortgage. Instead, the lender must be repaid when the last surviving borrower sells the home, passes away, or moves to another primary residence. However, as you receive money, your outstanding balance grows and interest is added to it each month.
Alternatives to a Single-Purpose Reverse Mortgage
There are several reasons a single-purpose reverse mortgage might not be the best fit for you. You may:
Not be able to find one in your areaHave too much income to qualifyWant access to a larger loan amountWant more freedom to use the funds
If any of the above applies to you, consider other types of reverse mortgages.
HECMs
HECMs are a type of reverse mortgage backed by the U.S. Department of Housing and Urban Development (HUD). They are easier to find than single-purpose reverse mortgages and the funds can be used however you want. You can also choose from a variety of payment options, including a single disbursement, a line of credit, fixed monthly cash advances, or a combination of these options. The amount you can borrow with an HECM is based on your age, your home’s appraised value, current interest rates, and more. However, your loan amount will be capped by HUD’s maximum loan limit, which is $970,800 in 2022.
Proprietary Reverse Mortgages
People with high-value homes and little or no outstanding mortgages might consider a proprietary reverse mortgage, which isn’t subject to HUD’s maximum loan limit of $970,800. Also known as a jumbo reverse mortgage, this loan enables you to borrow more than an HECM in one lump sum. However, it may come with a higher interest rate than an HECM.
